The proposal was to generate "carbon-free" electricity from hydrogen, reducing greenhouse gas emissions by capturing carbon dioxide and safely storing it in an oilfield nearing the end of production.

It would have seen the world's first industrial-scale hydrogen power scheme based in the town. The plans won praise from energy experts, environmental campaigners and politicians alike for pointing the way forward.

Banff and Buchan MSP Stewart Stevenson told BBC Radio's Good Morning Scotland programme: "A terrific economic opportunity for the north east appears to have been lost in the short-term, in the long-term for making Scotland a world leader in carbon capture technology.

"I just hope that it's possible for Westminster ministers to re-think this."

'Feast presented'

Professor Stuart Haszeldine, from Edinburgh University's school of geosciences, said Peterhead had been an extremely advanced project.

He added: "It's rather like BP had presented the government with a feast of a meal ready to eat with instructions and the government have not even come to the table."

Hundreds of jobs could have created by the project

Mr Darling responded: "I would have liked to have seen this work being done in Peterhead."

However, he explained: "I have got to have regard to the fact there are other companies with other projects.

"The government is duty bound to look at these and decide what one is the best."

A BP spokesman told the BBC Scotland news website that delays over the timescale had forced the decision.

He said the life of the Miller oil field central to the project had already been extended as long as possible but would not be available for the length of time needed.

Earlier warning

The spokesman said: "The decision to cancel the project is based on timing. It's a disappointment to us."

First Minister Alex Salmond had earlier warned MPs that government delays in supporting the project could put it in jeopardy and voiced his anger at the decision.

The SNP leader said: "Never has so great an opportunity been passed up because of delay and incompetence and the inability of Westminster ministers to take decisions.

"There will be other carbon capture projects, not least at Longannet, but this offered a further foothold in the hydrogen economy."

'Great regret'

Duncan McLaren, chief executive of Friends of the Earth (FoE) Scotland, said: "The UK government has once again shown itself obsessed with reviving the polluting nuclear power industry, so it is hardly surprising to hear that other methods of tackling climate change will be shunned."

Leader of Aberdeenshire Council, Anne Robertson, added: "Words cannot express the disappointment and frustration I feel on behalf of the people of Aberdeenshire that the Department of Trade and Industry has delayed so long that BP has had to pull out.

"This would have been a world first and it is a matter of great regret that the short sightedness of ministers has led to these innovative plans faltering.

"This would have brought huge environmental and economic benefits not just to Aberdeenshire, but to Scotland as a whole."